Here's how I explain this to people: There are a million different ways to write an algorithm that goes long on Apple in 2008. If you did that, you made money - Apple went up. You need to write an algorithm that is smart enough to pick Apple out of the sea of choices in 2008, OR you need to write an algorithm that can make money even when the underlying stock isn't a rocketship.
Backtesting is great because it lets your rule out the obvious losers. But when you get an algorithm that looks good, that's when it gets even harder. You have to scrutinize it again and make sure you're not fooling yourself. There are a couple good ways to do that. One is to hold back some data, called "out of sample data" and then at the very end, test the out-of-sample data. The other is paper trading. You can never overfit papertrading.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.